Prompted by PB I read Gambling with Civilization by Paul Krugman, which is a review of The Climate Casino: Risk, Uncertainty, and Economics for a Warming World by William D. Nordhaus. I haven’t read the latter.

The Climate Casino is in no sense the work of someone skeptical about either the reality of global warming or the need to act now. He more or less ridicules claims that climate change isn’t happening or that it isn’t the result of human activity. And he calls for strong action: his best estimate of what we should be doing involves placing a substantial immediate tax on carbon, one that would sharply increase the current price of coal, and gradually raising that tax, more than doubling it by 2030

And so I want to know, “how strong is this strong action”? A carbon tax is good, obviously, but Shirley Nordhaus is a touch more specific than “sharply increase the current price of coal”, so why can’t Krugman be? K continues Some might consider even this policy inadequate… to which the obvious answer is: “how can I possibly know whether its adequate or not, you bozo, unless you tell me how big this tax is?”

K continues:

it turns out that the rate at which you discount the distant future doesn’t make much difference to optimal policy

Well, that’s fascinating, and rather surprising. Especially given all the fuss over Stern’s numbers – an insight like that would be a major change to the discourse. Obviously K will go on and tell us how this comes about. Ha ha, fooled you – or more likely I didn’t – K just notes this point and moves on. WTF?

K says that N says “there will be mounting costs as the temperature rise goes beyond 2°C”. Again, this is irritatingly vague, and it isn’t clear if there are costs, but they go up sharply post-2°C, or if small net benefits turn into costs post-2°C. Perhaps its not desperately important: the focus is on large changes; and anyway, N isn’t trying to say anything startlingly original at this point. K/N both agree that the std.textbook_method for dealing with emissions is pricing emissions, and are happy with “a carbon tax and/or cap-and-trade”. N says direct regulation is a poor choice; K acknowledges that, but then in his own voice half-argues for regulating coal-fired power stations, on the grounds of political feasability. I’m dubious, as before.

What’s our target for limiting T rise? [Note that there is some dissonance between that question and a carbon tax, which K doesn’t mention, so I don’t know if K does.] “The scientific rationale for the 2°C target is not really very scientific” says N, but you can sense that K doesn’t really like this.

K wonders who is the target for N’s book. As he says, all the sane folk already agree, and the wackos aren’t about to be convinced by rational argument. There is, of course, a failure in self-referentiality there, because one could say exactly the same thing of K’s review. Given his disappointing vagueness about rather important details, its clearly not intended for the numerate.

Comments

The other point that I thought was interesting was according to Nordhaus’s dice model, if the world implemented the correct policies (eg all countries implemented a carbon tax) the optimum policies would result in 2.3 degree c warming without too much economic damage, but given politicians are unlikely to implement optimum policies it may be 4 degree c

The other point that I thought was interesting was according to Nordhaus proposed an immediate tax of $25/tonne with it rising over the decades to work with the grain of the economic cycle (so eg you could run down existing coal fired plants and use their useful lifetime but not build any new ones)

[Where did you find $25? Not from K I think. Had K reported a number, I’d have been forced to think -W]

There is a recent EconTalk podcast about the discount rate. At least interesting for someone who has not thought about (the importance of) this problem before (me).

“Robert Pindyck of MIT talks with EconTalk host Russ Roberts about the challenges of global warming for policy makers.”

And it is a joy to listen to the libertarian host trying to stay polite to a guest that has the adventurous opinion that “there is little doubt about the existence of human-caused global warming via carbon emissions”. :)

I’m surprised the discount-rate stuff is new to you: it was the major problem with Stern. See for example http://scienceblogs.com/stoat/2006/11/22/nordhaus-on-stern/ the odd thing is that its Nordhaus pointing it out, then. So why has he now changed his mind? I’m half-suspecting that he hasn’t; that this is K speaking for him -W]

[Thanks Pete. Without looking up the details, from memory those look like plausible numbers – by which I mean, plausible from what I understand of the std economic perspective, and ignoring the political aspects -W]

The original Nordhaus proposal was of $5 a tonne CO2-e rising to, in 2040 or so, $240 a tonne. But it should have started a decade ago.

And PeteB’s entirely correct that this is to work with the grain of the economic cycle. Pretty much no generating plant is going to operate for more than 50 years. So, if we have a believable tax rise into the future then as old plant is retired then it will be replaced with non (or less) emitting plant.

Oh my good Lord! Seconding some other comments – fine, have some thoughts on a book review. But actually massively slag Krugman off based on not going into more details about book points you think he should? And call him a bozo for making that choice?

[Yes. He’s missed out the most important bits. K is claiming that N has had a massive change of heart – that the discount rate doesn’t matter – and then just passes over this, as though its trivia. That makes no sense at all, unless perhaps N didn’t really say that, and K would rather not go into detail for fear of making that too obvious -W]

Having spent a lot of time digging into Krugman’s thought/modelling work (not his recent prominent macro stuff, the older geographical economics material he got the Nobel prize for; it was a central chunk of my PhD) it’s just comical seeing you call him a bozo. There’s pretty much no-one else in economics who combines careful self-awareness with robust analysis so effectively. If Krugman’s making a point in a book review, I’d hold off until you’ve gone and checked the book before making such daft pronouncements on his bozodom.

[I mean, I can’t tell whether N really said what K says he said. Had N really said it, I’d have expected to see it covered in more detail. Indeed, I’d have expected to see it noted elsewhere. I wouldn’t expect this apparent indifference -W]

In the review K said that N was surprised by the result, but it’s what N’s models showed. Seems fairly straightforward – found new evidence and changed his view.

[Sorry, not good enough. This is – if what K says is true – a major, game-changing result. It would invalidate the strongest criticism of Stern, for example. And yet everyone passes it by with just a shrug? You lack of interest is astonishing -W]

“Beyond that lies ideology. “Markets alone will not solve this problem,” declares Nordhaus. “There is no genuine ‘free-market solution’ to global warming.” This isn’t a radical statement, it’s just Econ 101. Nonetheless, it’s anathema to free-market enthusiasts. If you like to imagine yourself as a character in an Ayn Rand novel, and someone tells you that the world isn’t like that, that it requires government intervention—no matter how market-friendly—your response may well be to reject the news and cling to your fantasies. And sad to say, a fair number of influential figures in American public life do believe they’re acting out Atlas Shrugged.”

Have a problem with that?

[I fully agree that markets alone won’t solve the problem, but no-one sane is proposing they would. A carbon tax is a non-market solution, but then so is a police force and a judicial system. I think there’s an element of straw-man erecting here from K, though I’m sure there are any number of nutters who think AS is just great -W]

Side notes. Buried and ignored in the polemic of the politicians who look for reasons to do nothing, Tol suggests $50 as a baseline/ minimum rate.
The pernicious influence of post-Randian quasi-fascism is evident right up to the level of Presidential candidature. I refer you back to Pulp. What flavour is K.?

Not having read the book, I am in a perfect position to make a wild speculation about that discount rate issue. Is it possible that the convexity of the damage function is such that, regardless of the initial carbon tax (that is, roughly the net present value of a further ton of CO2 emitted now), we have to stabilize at the same emission level, anyway? Say: scenario “Stern” starts with a high carbon tax (due to a low discount rate, and thus high net present value of future damages) and reins in emissions right away; scenario “Nordhaus” starts with a low carbon tax (‘high’ discount rate) that ramps up rapidly due to a strongly increasing marginal damages. And at the end, both stop at more or less the same level. Does this make sense?

Apart from that, I don’t see why one shouldn’t disagree strongly on the discount rate, even if the optimal policy (Krugman didn’t specify the term: does he mean the trajectory, od the end result?) is roughtly the same. The trajectory might still be very different, in that Nordhaus ramps up from a low tax, Stern has a high tax right away. But apart from that, there is an academic issue: even if the policy relevant results are not strongly influenced, Nordhaus might still freak out because he thinks Stern is simply wrong in how he derived the discount rate (and vice versa). You know, like chemists having conniption fits because a dative bond in a coordination compund isn’t represented with an arrow, or something.